Fed's Barkin cautious amid weaker jobs data, avoids prejudging rate cuts

Fed rate cut: Richmond Federal Reserve President Thomas Barkin stated that he is not ready to change his monetary policy outlook following unexpectedly weak US jobs data released on Friday, despite Wall Street's shift towards anticipating aggressive interest rate cuts.

"The job growth was weaker than what most professional forecasters had forecast," Barkin remarked during a TV interview with the Carolina Business Review, according to a transcript. However, despite the softer July hiring data, Barkin said, "I don't try to prejudge meetings," refraining from providing any guidance on potential rate cuts.

"We're going to get a lot of data between now and September," Barkin told the PBS program. "Two whole rounds of jobs reports, two whole rounds of inflation readings, a lot of activity metrics," he explained, adding, "We'll make the best decision we can when we get to September."

Barkin's comments came shortly after the Federal Reserve decided on Wednesday to maintain its benchmark interest rate in the 5.25 per cent-5.50 per cent range, while also keeping the door open for a possible rate cut in September amid slowing inflation and a cooling job market.

This outlook was jolted by the Labour Department's monthly employment report for July, which revealed a smaller-than-expected increase of 114,000 jobs and a rise in the unemployment rate to 4.3 per cent from the previous month's 4.1 per cent.

Many economists have adjusted their forecasts to predict a more aggressive rate-cut path, with some even considering the possibility of a half-percentage-point reduction in borrowing costs next month, instead of the previously anticipated quarter-percentage-point move. JP Morgan economists speculated whether the Fed might need to ease before the scheduled meeting, given the potential for the labour market to deteriorate faster than expected.

Some analysts even argued that the Fed should have cut rates at this week's meeting, citing easing inflation data as justification.

Barkin dismissed the notion that the central bank had erred by not cutting rates, stating, "I always assume there will be an equal amount of criticism no matter what we do. And so if we had moved at the last meeting, we would've gotten an equal amount of criticism that said we moved too quickly."

Barkin noted that the US job market remains solid by most standards, pointing out that the rise in the unemployment rate in July was "pretty normal" from a historical perspective and that the overall level of joblessness remains low.

"We've been through two years, two and a half years of very frothy labour markets," Barkin said, "and so we're headed back down toward normal."

On the inflation front, Barkin commented, "My gut is that it's normalising." He added, "On the employment side, I think it's harder to know."

Barkin's cautious approach underscores the complexity of the current economic environment, as the Fed navigates between fostering growth and preventing overheating in the economy.

(With Reuters inputs.)